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Why charts; why not fundamentals

June 24, 2022

I am beginning to think that all these articles are as though I am playing for time. My job is to recommend shares but how can I do that in a raging bear market. I can’t except for the Chinese shares that are showing signs of starting a new bull run.

Plus I have realised something important about myself. I am not an investor. I am a gambler. Maybe that is why I like spread betting so much. But I also think there is nothing wrong with being a gambler. I cannot remember a time when I made an investment in shares that was not leveraged and that includes my earliest investments when I was 12 years old or whatever I was when I first got hooked on the stock market. I can remember sitting in a cinema downing tranquilliser pills as I realised that my latest bet was going badly wrong.

Five times leverage is perfect for me because it means if I get it right I win big and if I keep getting it right I win massively. This can work the other way. I once walked into an investment bank and the guy who was my go-to guy at the bank introduced me to the CEO of the bank who came out with two prize remarks. “So this is the guy who pays your salary” and “Does he realise how much he has just lost?’ Of course I bloody did but I have been there so many times. This is why I am dreaming that my new trading focussed approach is going to help at least partially solve that problem and whoever is dealing for me (me actually on IG) will be able to say “Does this guy realise how much he has just made”.

When I first started looking at charts there was an approach put forward by some chartists called ivory tower charting. The idea was to use pure chart analysis to interpret charts to the extent that they did not even know what the company did. I am not like that; I want my shares to be 3G (great growth, great story, great chart) so two out of three are based on fundamentals. But I have realised not only that it is easy to work out those fundamentals but that more time spent on the fundamentals is counter-productive.

What do we use fundamentals for; not to tell us where the shares are going because that simply doesn’t work. Stunning fundamentals might mean the shares are going to climb but they might equally mean the shares are too high, driven higher on a wave of optimism about prospects. Who can tell the difference? We use fundamentals as part of confirmation bias to reassure us that the shares we hold are going higher which sometimes they do and sometimes they don’t.

Bottom line after the initial share selection fundamentals are useless at telling us what the shares are going to do. So how do we know what to do? There is only one other game in town, charts. So for me share analysis is 20pc fundamentals and 80pc charts. This in turns means that all my energy is going into honing my approach to charts and the indicators I use.

It has also changed my attitude to selling. I always used to think how much better I would do if I never sold like Warren Buffett and the CEO of the typical successful company. But now I realise that is not for me. It is like trying to swim upstream. I am going to sell one day so I need to use logic, science and charts to make that decision as wisely as I can.

My next big breakthrough, helped by research done by my cousin, Mycroft to my Sherlock Holmes if that is not too ridiculously egotistical as an analogy, is that Coppock can be an invaluable aid in doing this which leads directly to my 3B system for buying and my 3S system for selling. Both of which can be modified by my two out of three ain’t bad approach.

Just as a taster we are working on another simple but exciting indicator which could refine our timing decisions even more. I like to keep it simple. Charts can easily become mumbo jumbo if you let it all become too complicated. Remember my mantra. If the message is not obvious there is no message.

This in turn means that I have become much more interested in strategy. As an extreme example you don’t need 200 shares in your portfolio. You could have just one, QQQ3. If you get the strategy right you should still make tons of money. Even if you get it wrong you should still do well as long as you are patient.

At the moment my efforts at buying QQQ3 feel a bit like a kamikaze mission, as in wow, they have fallen a long way, let’s buy some. The alternative and more scientific approach would be to wait for a buy signal and buy then. As noted in an earlier alert I am doing mix and match, kamikaze purchases on the way down plus plans to pile in when we do finally get a buy signal.

This has made writing these alerts easier because I no longer bother to do tons of research. You might think that is what you are paying me for but if I think it is a waste of time and I do let’s focus on what does help which is reading the charts and using the indicators I favour.

I hear so little from my subscribers that I have no idea whether you guys think I am onto something with my chart-based trading approach or not. Is anyone going to open a spread betting account? Does anyone read what I write? Is there anyone out there? Does life exist beyond my seven bedroom house in Saffron Walden where I presently live in solitary splendour?

I don’t know but I am going to press on. I have a feeling that I have kind of discovered the wheel in investment terms with my indicator based, ‘scientific’ trading system and it is going to make me lots of money as the bear market finally hits bottom and share markets turn upwards with lots of exciting buy signals.

When everything is falling it is hard to imagine when or whether shares are ever going to rise again but if there is one lesson from history it is that they will; they always does and I for one intend to make zillions when that happens. So that’s my simple plan as Baldrick or somebody might have said.

Strategy

As this alert goes out I am starting work on another one which should go out later today. I am starting to get a better feeling about this market but of course we are scientific now so we don’t pay any attention to that emotional stuff. Nevertheless. There is a wall of money out there and plenty of itchy trigger fingers. There is going to be fun and games at some point and shares have become amazingly better value thanks to the dramatic falls seen in the last 16 months.

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